Wednesday, June 15, 2016

FOMC Rate Decision … Producer Price Index … Empire Manufacturing … Industrial Production … Crude Inventories …

The Federal Reserve sent a strong signal that it now expects only one interest rate hike this year, and the market now sees less than a 50 percent chance of even one rise by year-end.” Story at….
“U.S. producer prices rose for a second straight month in May as the cost of energy products and services increased, but the lingering effects of a strong dollar and lower energy prices will likely keep inflation tame for a while. The Labor Department said on Wednesday its producer price index for final demand increased 0.4 percent last month after rising 0.2 percent in April.” Story at…
“Manufacturing activity across New York State regained momentum in June, reversing last month's decline and the latest evidence of the sector's shaky recovery. The Empire State's business conditions index jumped to 6.0 from -9.0 last month…” Story at….
“U.S. manufacturing output unexpectedly fell in May as motor vehicles and parts production recorded its biggest drop in nearly 2-1/2 years, suggesting sustained weakness in the sector even as the overall economy appears to be gaining momentum.” Story at…
“U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.9 million barrels from the previous week. At 531.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year.” Press release at…
-Wednesday, the S&P 500 was down about 0.2% 2072.
-VIX was down about 2% to 20.14 at the close.
-The yield on the 10-year Treasury slipped to 1.60%.
There was a rather extreme late day sell-off that started about 30-minutes before the close.  I can’t begin to explain it other than to guess that perhaps traders were taking profits. Closing tick (measuring the sum of final trades on the day) was a very high minus-658. Usually, a closing negative-tick on a down-day means more selling the next (Thursday), but there were positive signs too. 61% of issues on the NYSE were up Wednesday and that usually leads to an up-day the following day (Thursday). 
My sum of 16-indicators was zero a week ago.  Now it is minus-6 reflecting the weakening conditions in the stock market, but it is not falling very quickly so this indicator isn’t saying much.  At this point, it looks like around 2030 would be a logical place for a bounce up, but I’ll follow indicators if the Index gets to that level.
Over-all, indicators aren’t giving much direction so it’s a coin flip until we get some more evidence.
My short-term Money Trend indicator can be volatile, but it flattened Wednesday and may be hinting at a turnaround; that’s neutral.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only.
The 10-day moving average of the percentage of stocks advancing (NYSE) dropped to 49.6% Wednesday. It was 50.1% Tuesday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks rose to 51.9%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) improved, but remained in negative territory.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +85 Wednesday. (It was +12 Tuesday).  The 10-day moving average of the change in spread rose to minus-2. In other words, over the last 10-days, on average; the spread has decreased by 2 each day. Market Internals switched to negative on the market.

Market Internals are a decent trend-following analysis of current market action, but should not be used alone for short term trading. They are usually right, but they are often late.  They are most useful when they diverge from the Index.  In 2014, using these internals alone would have made a 9% return vs. 13% for the S&P 500 (in on Positive, out on Negative – no shorting).  Of course, few trend-following systems will do well in an extreme low-volatility, nearly straight-up year like 2014.
Wednesday, the Volume & Sentiment indicators were neutral; the Price indicator (measuring the size of up vs down moves) was positive; the VIX indicator remained negative. The long-term NTSM indicator remained HOLD.

On 30 Dec I reduced my invested position in my retirement account to 30% invested in stocks thru an S&P 500 Index fund (“C”-fund in the TSP) and on 15 Jan I reduced stock allocation to zero in long-term accounts. I remain in cash earning about 2%.  Short-term bonds would give a similar result.
The S&P 500 peaked in Mid-May 2015 and has not been able to break higher in the past 12-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…